Be Wary of Real Estate Deals That Turn Out to Be Ponzi Schemes

Consumers were convinced they were making a safe real-estate investment and that they would receive an annual return of 14% to 16%. What happened instead is that the salesman made millions, while consumers lost their savings.

The Utah Attorney General's Office and the U.S. Department of Commerce say the conviction of William Hammons should serve as a warning about unscrupulous advisers promoting phony investments. Hammons, 66, was found guilty of securities fraud, unlicensed sales of securities and racketeering."At its core, this was a case about greed and the depths to which the defendant was willing to sink, all in the name of money," Assistant Attorney General Che Arguello said in a statement.

Hammons was a sales agent for VesCor, a company that said it engaged in financing, acquisition, ownership, development and management of commercial and residential real estate in the Western United States.

But VesCor was in debt from the early 1990s when it set up shop, said Arguello. The company was run by Val E. Southwick, currently serving a nine- to 135-year prison sentence after being convicted in 2008 of securities fraud, he added.

"Don't let yourself or your loved ones get sucked into someone else's investment fraud," Keith M. Woodwell, director of the Utah Division of Securities, said in a statement.

Arguello said the evidence presented at the trial showed VesCor had all the characteristics of a classic Ponzi scheme, including:

Business activity depended solely on outside investor money.

Investors' money wasn't used as promised.

New investor money was used to pay promised returns to previous investors.

VesCor promised unusually high rates of return compared to the promoted risk.

Certain investors received preferential treatment.

By July 2007, investors were owed more than $52 million in promised returns. Arguello said a civil lawsuit has been filed against Hammons asking for the return of his commission payments.